Speaking from experience running a small clothing brand that buys blanks from wholesalers like YouApparel and ShirtSpace: the cleanest way to handle taxes is to treat blank shirts and decorating materials (ink, film, pretreat, packaging) as inventory that flows through Cost of Goods Sold (COGS), not general office supplies.
What works for me:
• Track inventory with a simple SKU list by style, color, size, and unit cost. Keep a running log of materials used per job. Do a quick count monthly and a full count at year end.
• On Schedule C, I report all sales as gross receipts and compute COGS as: beginning inventory + purchases + direct materials and production labor − ending inventory. My owner time is not deductible as labor. Mailers and boxes used to ship finished goods go in COGS.
• I do not expense everything when purchased. If I buy 500 blanks in December and only print or sell 200, only the cost of those 200 hits COGS this year; the rest is ending inventory.
If you qualify for the small business inventory simplification (Section 471(c)), you can treat inventory as materials and supplies or follow your book method. In practice, you still deduct when items are used or sold, not the day you buy them, so you still need basic counts.
Two tips:
1) Job costing beats guesses. Attach a quick job sheet to each order showing blanks pulled, ink or film used, and press time. It helps pricing, reorders, and taxes.
2) Sales tax is separate. Use a resale certificate when buying blanks and collect or remit sales tax in states where you have nexus.
Bottom line: treat blanks and production materials as inventory/COGS, keep consistent records, and have a CPA confirm your method.
